Natural Gas Caps Longest Advance Since June on Warmer Weather

Updated on

Natural gas futures advanced for a third straight week, the longest such streak since June, on speculation that unusually warm U.S. weather in late May will stoke demand for the power-plant fuel.

The government Global Forecast System’s midday update showed temperatures in the East may stay 2 to 5 degrees higher than the norm May 25 through May 29, said Frontier Weather Inc. Computer models previously showed temperatures swinging to cooler readings during the period.

Gas has been flowing into storage caverns at faster rates than the five-year average since the start of April. Prices have jumped 9.6 percent so far this month after the two most recent storage injections were smaller than forecast and speculators cut bearish bets by almost half.

“The bullish case is summer’s coming,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “This rally for most of this week is caused by fund speculators covering short positions.”

Money managers have held net-short positions in four benchmark gas contracts all year, U.S. Commodity Futures Trading Commission data show. They reduced those bearish bets by 43 percent to 72,225 futures equivalent in the week ended May 5 from a record 126,148 the previous week.

Natural gas for June delivery rose 0.8 cent to settle at $3.016 per million British thermal units on the New York Mercantile Exchange, the highest level since Jan. 16. The futures gained 4.7 percent this week.

Weather Outlook

New York City temperatures on May 20 may reach 70 degrees Fahrenheit (21 Celsius), 2 lower than average, before jumping four days later to 80, according to AccuWeather Inc.

Electricity producers will burn 3.96 billion cubic feet, or 19 percent, more gas compared with last May, the U.S. Energy Information Administration said in its Short-Term Energy Outlook on May 12. Generators will account for 39 percent of total U.S. gas demand this month.

A triple-digit stockpile increase last week was the first injection of that size since October and a record for the first half of May in EIA data going back to 1996.

Inventories expanded by 111 billion cubic feet, topping the five-year average of 82 billion. A supply deficit to the five-year average narrowed to 2 percent from 3.6 percent the previous week.

“It’s going to be hard to maintain these lofty levels in the face of the overwhelming supply picture,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, said by phone.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE